Principle of Insurance

Principle of insurances
Insurance contracts are based on certain principles, which are special to this class of contract. These principles are: 1.Utmost good faith 2.Insurable interest
3.Indemnity 4.Promixate cause
5.Subrogation 6.Contribution
7.Mitigation
(1). Utmost good faith : Insurance contracts are based on utmost good faith of insured as well as insurer. Utmost good faith requires each party to tell the other ‘the truth, the whole truth and nothing but the truth’. This means each party to other must supply full information so that much important information can be achieved. It is duty of the insured that he should disclose all necessary facts about the subject of insurance. This may help insurer to ascertain the risk and the rate of premium. Similaely, the insurer has the duty to disclose the scope and all necessary facts relating to insurance contract.
Both the insurer and the insured are responsible for disclosing material information. All the facts as they exist should be disclosed at the time of giving a proposal for insurance by the insured. if any of the parties does not apply the principles of utmost good faith, another party may make the agreement void.
(2). Insurable interest: The insurance contract will be valid only if the insured has insurable interest in the subject matter of insurance.
Interest means a relationship between insured and the subject matter insurance. This realationship should involve monetary gain from the existence of the subject matter or loss from its destruction. If the insured does not suffer a loss out of the destruction of the subject matter he has no interest.In the abesnse of this provision anybody can get a property insured and may claim the indemnity of loss from an insurance company by destroying the property. Thus, it is essential that the insured should have insurable interest in the subject of insurance. An insured obtains insurable interest in the subject matter on account of the following relationship.
a. Interest arising out of ownership;
b. Interest of a person in his own life or on the life of the person on whom he\she depends;
c. Interest from business relationship such as